21
The proposed introduction of a Merchant Discount Rate (MDR) on selected high-value UPI merchant payments is drawing attention as a possible way to create a sustainable revenue
stream for India's digital payments ecosystem, while keeping most everyday UPI transactions
free.
Under the new framework, a 0.4 per cent MDR will apply to specified person-to-merchant (P2M) UPI transactions above INR 2,000 from October 15, 2026. The charge will be capped at INR 300 for transactions of INR 75,000 and above. Person-to-person payments will continue to remain free, while merchant transactions of up to INR 2,000 will also remain outside the MDR framework.
The government has clarified that MDR is not a tax or a charge collected by the government. Instead, the fee remains within the payments ecosystem and is distributed among participating entities involved in processing UPI transactions. Around 96 per cent of merchant UPI transactions are expected to remain unaffected under the new framework.
The proposed model has gained importance as UPI's rapid expansion has increased the need for continued investment in payment infrastructure, cybersecurity, fraud prevention and technology.
NPCI Managing Director and CEO Dilip Asbe said the proposed MDR could generate around INR 13,000 crore to INR 15,000 crore during its first year. He said the estimated annual cost of operating the UPI payment system is around INR 21,000 crore.
According to Asbe, a significant portion of the MDR pool is expected to come from large businesses that already use other payment methods carrying merchant fees. He also said part of the revenue could support investments in areas such as artificial intelligence, cybersecurity and the expansion of payment infrastructure.
The framework also includes provisions aimed at supporting smaller merchants and expanding digital payment acceptance. Industry participants see such funding as important for extending UPI infrastructure into smaller cities and rural markets.
For consumers, the immediate impact is expected to remain limited because the MDR is applied within the merchant-side payment ecosystem rather than directly to individual users. The government has also indicated that consumers should continue to be able to use UPI without a transaction fee.
The introduction of MDR marks a shift in the economics of UPI, which has operated largelywithout merchant charges for several years. The move is intended to provide additional resources for maintaining and expanding one of India's largest digital payment networks while preserving free access for most users.
Under the new framework, a 0.4 per cent MDR will apply to specified person-to-merchant (P2M) UPI transactions above INR 2,000 from October 15, 2026. The charge will be capped at INR 300 for transactions of INR 75,000 and above. Person-to-person payments will continue to remain free, while merchant transactions of up to INR 2,000 will also remain outside the MDR framework.
The government has clarified that MDR is not a tax or a charge collected by the government. Instead, the fee remains within the payments ecosystem and is distributed among participating entities involved in processing UPI transactions. Around 96 per cent of merchant UPI transactions are expected to remain unaffected under the new framework.
The proposed model has gained importance as UPI's rapid expansion has increased the need for continued investment in payment infrastructure, cybersecurity, fraud prevention and technology.
NPCI Managing Director and CEO Dilip Asbe said the proposed MDR could generate around INR 13,000 crore to INR 15,000 crore during its first year. He said the estimated annual cost of operating the UPI payment system is around INR 21,000 crore.
According to Asbe, a significant portion of the MDR pool is expected to come from large businesses that already use other payment methods carrying merchant fees. He also said part of the revenue could support investments in areas such as artificial intelligence, cybersecurity and the expansion of payment infrastructure.
The framework also includes provisions aimed at supporting smaller merchants and expanding digital payment acceptance. Industry participants see such funding as important for extending UPI infrastructure into smaller cities and rural markets.
For consumers, the immediate impact is expected to remain limited because the MDR is applied within the merchant-side payment ecosystem rather than directly to individual users. The government has also indicated that consumers should continue to be able to use UPI without a transaction fee.
The introduction of MDR marks a shift in the economics of UPI, which has operated largelywithout merchant charges for several years. The move is intended to provide additional resources for maintaining and expanding one of India's largest digital payment networks while preserving free access for most users.
